In the not-too-distant future, in a galaxy very close to you, a great adventure will unfold: the 2017 Inside Self-Storage World Expo. The epic event, April 10-13, at the Paris Hotel & Resort in Las Vegas, will bring together industry professionals from across the planet to learn, interact and get a fresh perspective on a business that’s breaking box-office records. To advance from Padawan to Jedi Master, you must awaken your “Force”! The expo will show you how.

Learn the Ways of the Jedi

With 45 seminars, there’s massive knowledge to be absorbed at this year’s show. The concurrent education program is organized into seven specialized tracks, with courses designed for every industry role. They cover building, finance, investing, management, marketing, ownership and technology. Below is a sampling of seminars appropriate for each level of learning. For session details, including speaker information, visit the education pages at www.insideselfstorageworldexpo.com.

Apprentices

• Construction Essentials: Self-Storage Building Materials and Components
• Entering the Self-Storage Market: Should You Buy an Existing Facility or Build One?
• A Survival Guide for Self-Storage Borrowers: Choosing a Loan and Lender
• 8 Secrets Every Self-Storage Manager Needs to Know to be Successful
• Rent That Unit! Self-Storage Sales Strategies to Seal the Deal
• Lessons We've Learned in 50 Years of Self-Storage
• Marketing to Millennials: Understanding a New Generation of Self-Storage Buyers
• Grassroots Gumption: Planning Self-Storage Campaigns, Events and Other Community-Based Marketing

Knights

• Self-Storage Building and Design: Case Studies of Success
• Fast Track to Profit: Investing in Underperforming Self-Storage Properties
• 5 Steps to Securing Your Own Promotion: A Guide for Self-Storage Managers
• Creating a New Sales Culture to Stop Self-Storage Revenue-Killers
• Legal Strategies Every Self-Storage Manager Must Implement Today
• 10 Things Self-Storage Owners Do to Self-Sabotage Their Business
• Self-Storage and the Local-Search Ecosystem: Managing Your Multiple Business Listings
• Lead Tracking From Start to Finish: Determining Your Self-Storage Marketing ROI

Masters

• Function vs. Aesthetics: Balancing the Value in Self-Storage Conversions
• Self-Storage and the Real Estate Cycle: Market Dynamics, Property Value and More
• Advancements in ‘Unattended’ Self-Storage Facility Management
• Living in a Digital Age: Online Self-Storage and Legal Compliance
• Delving Into Your Self-Storage Management Data: The Truth It Tells and How to Use It
• Tax-Saving Strategies for Self-Storage Businesses
• Mobile SEO and SEM: The Self-Storage Industry's 800-Pound Gorilla
• Creating Actionable Self-Storage Marketing with Google Analytics Data

The Jedi Council

Professionals seeking advanced wisdom should also attend any of the expo’s seven deep-dive workshops. These comprehensive sessions, taught by astute guides with frontline knowledge, will help masters stay at the top of the galactic empire. Workshop registrations can be purchased a la carte; or you can opt for the All-Access Pass, which gives you admission to any and all offerings.

• Development: A must for anyone looking to build, expand or renovate a property. Topics include development, new construction, conversions, layout, materials and more.
• Legal Learning Live: This intensive workshop will focus on lien-sale errors, why words matter, bailments and other actions that lead to high-risk legal exposure.
• Legal Primer: Learn the legal issues that crop up daily at storage facilities and how to handle them. Topics will include rental agreements, late fees, tenant bankruptcy and more.
• Management: Get valuable tactics for handling everyday operational issues. Concrete ideas and case studies will help novice and experienced managers alike improve their job performance.
• Marketing: The primary pillars of online marketing covered in this workshop will help you compete in today’s digital world. Learn about SEO, paid search, mobile and other online approaches.
• Owner/Operator Executive: Looking to elevate your outpost? Then this is the workshop for you. Topics include hiring, policies and procedures, revenue-management systems, and facility auditing.
• Sales Skills: This new offering will teach participants with a plug-and-play sales system to boost conversions, raise rates, prolong length of stay and bolster the bottom line. Learn how to reach sales goals and improve revenue.

Your Vendor Alliance

Your education continues inside the expo hall where nearly 200 companies will be looking to aid in your quest for success. Open for seven hours over two days, the show floor is the perfect place to build your alliance of suppliers. Whether you’re seeking a lender, construction team, management coach or software firm, you’ll find it here. Attendees will be dazzled by the breadth and depth of the products and services to be revealed.

The notable and wise Jedi Master Qui-Gon Jinn once said, “Your focus determines your reality.” It’s time to get off the dark path and seek the light of the ISS Expo. To register or explore information about the education tracks, seminars and speakers, visit www.insideselfstorageworldexpo.com.

Commercial real estate developer GHK Cape Fear Development intends to build a self-storage facility on a vacant 4-acre lot in Wilmington, N.C. The facility at 1101 S. 17th St. would comprise 76,000 square feet. The land is zoned for light-industrial use, which allows self-storage under certain conditions. GHK is under contract to purchase the parcel from GateHouse Media Inc., which owns the neighboring “StarNews” newspaper and its offices, according to the source.

"We've done a tremendous amount of market research starting last summer. We feel like self-storage is an asset class that is underserved in that submarket," Mike Brown, a GHK partner, told the source. The facility will offer mostly climate-controlled units, which Brown indicated was lacking in the area.

The project will be GHK’s first self-storage development. "It will be a nice facility. It's going to look great from the street, where we are planning an architecturally appealing building façade. We also plan to include the best technology available in the self-storage industry," Brown said. "Self-storage is an industry that has evolved over the past 20 years from an old business model where you have multiple linear buildings with a lot of non-climate-controlled space to present day where we are seeing facilities that utilize high-end architectural elements, which better fit the urban streetscapes, not to mention advances in product offerings available to the customer."

Based in Wilmington, GHK specializes in industrial, medical, multi-family, office and retail development. It has been involved in several local developments including project management of a grocery store and office buildings, according to the source.

A former employee of Texas-based Metro Mini Storage Inc. has filed a lawsuit against the self-storage company and director Lorraine Drake alleging breach of contract for unpaid overtime wages. Michael Alford filed the complaint on Jan. 13 in the Houston division of the Southern District of Texas, alleging Metro Mini violated the anti-retaliation provision of the Fair Labor Standards Act, according to the source.

Alford previously made a protected complaint on Aug. 1, 2014, seeking compensation for unpaid overtime when he had worked more than 40 hours in a week, according to the January complaint. Alford claims he was paid for hours worked only between 9 a.m. and 6 p.m. The lawsuit states he was terminated after filing the protected complaint, the source reported.

The plaintiff has asked for a jury trial and is seeking actual damages for lost back pay, reinstatement or front pay, court costs and other relief, according to the source. He is represented by Houston attorney Ahad Khan.

Metro Mini operates seven self-storage facilities in Texas.

Volta Global LLC, a private investment firm, has purchased a former Sports Authority in Orlando, Fla., which it plans to convert to self-storage. It will be the company’s first new development since entering the storage market last year under the First USA Storage brand. The 9.5-acre property at 7500 W. Colonial Drive will be managed by self-storage real estate investment trust Extra Space Storage Inc., according to the source.

The 90,000-square-foot, climate-controlled facility will be built in two phases. The first is expected to open in six months, the source reported. Property features will include electronic gate access, a modern office and video cameras.

Sarasota, Fla.,-based Baldwin-Howell Properties LLC is the developer on the project. The Starling Group, a real estate and development company, will serve as the general contractor.

Volta Global has a global, multi-faceted investment strategy across venture capital, private equity, real estate and public markets. It owns and operates 220,000 square feet of self-storage in Louisiana, North Carolina and Tennessee.

Live Oak Bank, which includes a self-storage lending division, recently donated $250,000 to the New Hanover Regional Medical Center (NHRMC) Foundation in Wilmington, N.C. The funds will support patients and their families as well as physicians and staff at the NHRMC Betty H. Cameron Women’s and Children’s Hospital, according to a foundation press release.

The hospital’s birthing center has been named in Live Oak’s honor.

“We are honored and grateful to Live Oak Bank for this extremely generous gift. It is a testament to their philanthropic support of our community and to the hospital team [that’s] dedicated to providing quality care to the women and children in our region,” said Schorr Davis, the foundation’s executive director and vice president of development. “Our patients, their parents and loved ones will benefit from this gift for many years to come.”

The foundation raises and oversees funds for NHRMC, a network of hospitals, outpatient centers, emergency services and physicians in Southeast North Carolina.

Founded in 2008, Live Oak originally focused on lending to veterinarians before expanding to other healthcare-related industries and specialty areas such as self-storage. The bank provides small-business loans for acquisitions, new construction, refinancing and other real estate loans. It was voted Best Finance Company by readers of “Inside Self-Storage,” a trade publication for the self-storage industry, as part of its 2016 “Best of Business” poll.

 

By Adam Karnes

Today’s commercial mortgage-backed securities (CMBS) loans are typically offered with the borrower’s choice of prepayment option: yield maintenance or defeasance. Both are designed to give the lender a “make-whole” for potential lost interest if the borrower chooses to repay the loan early. For example, he might decide to apply for a new loan to lock in longer-term financing at a lower interest rate or recapture equity; or he might sell his property.

Prepayment penalties are a necessity in commercial real estate lending. Here’s an explanation of why, as well as the pros and cons of each penalty type.

Planned Earnings

Through some combination of interest-rate yield spread, points charged up front or at maturity, and other fees, lenders plan to earn a certain amount of yield when they originate loans. They rely on prepayment penalties to ensure they (or the bondholder, in the case of CMBS) have the ability to earn the same yield as if the loan were carried until maturity.

On shorter loan terms, such as three to five years, the yield curve is fairly predictable, which means lenders are often comfortable with a more straightforward prepayment penalty, such as a simple step-down method. This is typically a percentage of the loan amount that steps down as the loan gets closer to maturity, say 3 percent, then 2 percent and then 1 percent.

On longer-term fixed-rate debt, the yield curve is much less predictable, and there’s a longer period during which rates can move. As a result, a more sophisticated penalty method is beneficial to the lender. If a 10-year loan is prepaid after six years, the lender would miss out on four years of interest payments. To compensate, the prepayment penalty provides the lender a lump sum that can be reinvested to maintain the same yield.

Yield Maintenance

Yield maintenance is a prepayment structure that typically consists of two payments: the outstanding principal balance of the existing loan and some predefined penalty. While the calculation provisions may vary from loan to loan, one benefit of yield maintenance is that it’s a fairly straightforward calculation.

One way to define yield maintenance is by calculating a replacement rate and multiplying it by the present value of the outstanding principal loan balance for the number of years remaining in the term. It’s necessary to calculate a replacement rate because once the outstanding principal is repaid, the lender can invest the proceeds in a low-risk asset such as U.S. Treasuries. However, the funds may need to be matched with other liabilities of the lender (i.e., the need to maintain yield).

At the time of writing, the five-year U.S. Treasury is yielding around 1.2 percent. This means that on a 5 percent mortgage-interest rate, there’s a 3.8 percent gap in yield that needs to be replaced. The bottom line is yield maintenance is much less complicated to execute than defeasance; it’s simply a mathematical calculation and requires only cash proceeds to pay off early. Once the conditions have been satisfied, the note is cancelled and the collateral released.

If owed, the yield-maintenance premium will generally be calculated by the lender’s mortgage servicer and included in the requested payoff quote. It may be beneficial to have an idea of how that number is calculated, which you should be able to replicate based on reading the definition in the loan document.

One disadvantage of yield maintenance is the loan typically features at least a 1 percent prepayment floor as a percentage of the outstanding balance. Because of the floor, the benefit to a borrower—which could be realized in a rising rate environment—is curbed. To calculate a replacement rate in the above example, the floor is irrelevant; but as the U.S. Treasury rate approaches the existing interest rate on the debt, the 1 percent floor comes into effect.

Defeasance

Defeasance is the actual replacement of the collateral that generates the stream in debt-service payments, most commonly with a portfolio of government securities. The word literally means “substitution of collateral.”

In defeasance, it’s the borrower’s responsibility to purchase the replacement collateral. This typically involves an agent or advisory firm that specializes in these transactions. Once a defeasance has been executed, the mortgage on the original collateral (the borrower’s property) is released from the lien and replaced with the defeasance collateral (government securities). Unlike in yield maintenance, where the note is actually terminated, a new security interest is perfected and the loan remains in place. The new portfolio of securities—often with varying maturities and coupons—re-creates the original debt-service payment stream at a 1.0 times ratio (plus some administrative fees).

One major advantage of defeasance is there’s generally no penalty floor. A scenario in which it may be beneficial is when the U.S. Treasury rates are higher than the existing loan’s contractual interest rate. In other words, if the securities have a higher yield, purchasing the replacement collateral may be cheaper, creating what’s known as a defeasance discount. If the replacement-collateral rates are below the existing loan’s interest rate (and with all other variables held equal), it seems logical that the cost to defease should be approximately the same as the cost of yield maintenance.

A major disadvantage of defeasance is the complication of acquiring the appropriate collateral; however, there are companies that specialize in providing this service at a fairly commoditized cost, which can include consultant, bond-trader, servicer and accountant fees. It may also include legal fees for the lender, borrower and successor borrower that will be established to hold the securities.

Defeasance is a longer process than yield maintenance and takes approximately 30 to 45 days. Therefore, it’s wise for the borrower to start discussion with a defeasance company when he begins working on his refinancing needs.

Depending on a self-storage owner’s investment goals, prepayment penalties can be a drawback to CMBS financing. Consider your long-term aims and weigh the pros and cons of each option. When in doubt, a professional can help you sift through the calculations and find the best solution for your particular situation.

Adam Karnes is a senior credit analyst for The BSC Group, where he specializes in the packaging of debt and equity financing requests for all commercial property types nationwide, with an emphasis on self-storage assets. Adam is based in Chicago. To reach him, call 312.878.7561; e-mail [email protected]; visit www.thebscgroup.com.

Amy’s Attic Self Storage, which operates six facilities in Texas, is inviting community members to stop by the facility and create Valentine’s Day cards for the elderly. Decorating stations were set up on Jan. 19 at Amy’s Attic properties at 930 W. Highway 190 in Copperas Cove and 800 Prospector Trail in Harker Heights. Open until Friday, the stations provide heart-shaped construction paper, markers and crayons, and stickers.

The cards will be delivered to local assisted-living centers and retirement communities by Amy’s Attic staff during Feb. 8 to 10. The operator also invited local residents to drop off homemade Valentines at all of its locations, and enlisted students from local schools to participate.

Amy’s Attic sponsors several community and charitable programs and events each year. Its Amy in Education initiative collects and delivers donations of supplies to local schools. The goal of the program is to have a positive presence in schools through donations, mentorship and teacher appreciation as well as participation in career fairs, according to its website page.

The Harker Heights property also hosted a bi-annual craft festival and fundraiser last year in conjunction with local furniture companies. The events benefited the Boys & Girls Club of Central Texas and Furniture for Families Inc., a nonprofit that provides furniture to those in need. In addition, Amy’s Attic supports the local chapter of the Boy Scouts of America, the Rainbow Room, an emergency-resource center, and Operation Phantom Support, which provides assistance to military families.

Founded in 2004, Amy’s Attic operates facilities in Belton, Copperas Cove, Harker Heights, Killeen and Temple, Texas.

Phoenix-based U-Haul International Inc., which operates more than 1,300 self-storage locations across North America, has acquired an abutting strip mall to its facility in Springfield, Mo., with plans to convert it to self-storage. The 1.28-acre property along E. Commercial Street borders U-Haul Moving & Storage at N. Glenstone, which opened in 1980. Once converted, the new building will operate as an expansion of the existing site.

The project will result in the addition of 240 indoor climate-controlled spaces to the property’s current 173 units. It’s expected to be complete by summer, according to a press release.

"The strip mall was becoming an eyesore,” said Bryan Dean, president of the U-Haul Co. of Missouri. "When we finish our renovations, it will be something that both U-Haul and the city of Springfield can be proud of. Most cities are starting to see the advantages of adaptive reuse. Our downtown district is converting older buildings into loft apartments, restaurants and office spaces. It is important for us to being doing our part. These buildings just need some TLC."

Established in 1945, U-Haul owns more than 44 million square feet of storage space. The company’s corporate sustainability initiatives, which support infill development to help local communities lower their carbon footprint, has led to dozens of conversion projects in recent years.

Investment Real Estate LLC (IRE), a property-management and consulting firm serving the self-storage industry, has hired George Hatchard as brokerage advisor. His responsibilities will include buyer representation, due diligence, feasibility studies, financial analysis, listings and sales for properties in the mid-Atlantic region, according to a press release.

“George’s experience with customer relationships and handling large capital purchases blends nicely into the self-storage industry,” said Kevin Bledsoe, vice president of brokerage. “He has impressive knowledge of financing and the tax effect of those transactions, which gives him a head start on day one. His professionalism and enthusiasm will be welcomed by our clients, and we couldn’t be happier having him on our team.”

Hatchard has 28 years of experience in the construction-equipment industry, including the last 23 as corporate accounts manager with Cleveland Brothers Equipment Co. in Harrisburg, Pa. He was responsible for the rental and sale of Caterpillar equipment to the company’s largest national accounts. In this role, Hatchard managed rental and sales revenue of more than $50 million per year, the release stated.

“I have always been interested in commercial real estate,” Hatchard said. “My family owned a self-storage facility in the 1980s, so when the opportunity presented itself to become a member of the IRE team and the self-storage community, it was a natural fit, something I was very excited to undertake.”

Hatchard has a bachelor’s degree from Indiana University of Pennsylvania in business administration, with an emphasis in marketing.

Since its inception in 1998, IRE has provided brokerage, construction, development and management services to self-storage owners and investors.

Jernigan Capital Inc., a merchant bank and advisory firm serving the self-storage industry, and Atlanta real estate developer Mequity LLC have closed on a $13.6 million property in Vinings, Ga., they intend to develop into a self-storage facility. The companies will convert an existing building and construct an additional connected structure. The multi-story facility will comprise 103,561 net rentable square feet in 1,118 climate-controlled units, according to a press release. Construction is expected to begin during the second quarter and take about a year.

The building site is off a well-traveled portion of Interstate 285 and will serve Atlanta suburbs Smyrna and Vinings to the northwest of the city. The area is experiencing population growth and is the new home to the Atlanta Braves baseball stadium, the release stated.

This is the second Atlanta self-storage project announced by Jernigan Capital in recent weeks. It also invested $14.1 million to build a 92,935-square-foot facility with developer RRB Development LLC in the West Midtown area of the city.

The Vinings project is the first co-investment between Jernigan Capital and Mequity. The developer specializes in self-storage and has projects underway in Florida, Georgia, New Jersey and New York.

Jernigan Capital is a commercial real estate finance company that provides financing to private developers, operators and owners of self-storage facilities. It offers financing for acquisition, ground-up construction, major redevelopment or refinancing. The firm intends to be taxed as a REIT and is externally managed by JCap Advisors LLC.